How Much Is Your Pension Fund Worth?

If you are saving into a pension, you are probably wondering how much money you will get on retirement.

It’s a common question retirement savers ask and not always easy to work out.

Taking money from a pension is easier than ever once you reach 55 years old, but the options for accessing the fund can be confusing.

The first bit is simple – everyone is entitled to take a quarter or 25% of the fund without paying any tax on the cash.

That 25% tax-free lump sum can be withdrawn in one go or as several payments.

That leaves three-quarters or 75% of the fund invested.

Factors that impact pension values

You can take all or some of that money as well, but beware because the withdrawal is subject to income tax and if you take a sizeable chunk of your pension, this could push you up into a higher tax bracket.

That extra tax then diminishes the amount you end up with in your hand.

The other point to consider carefully is that once the tax-free cash and any other withdrawal are made, the fund is smaller and the rate of growth will be lower as well.

So how much you get depends on the fund size, the tax you pay on withdrawals and lost investment growth on the remaining fund.

The other variable is how the investments in the fund perform. Yes, you lose growth once you draw cash because the fund is smaller, but the value of the fund also depends on how the stock market goes up and down on a given day.

Predicting how much cash you get from a pension is more of a guestimate than an exact science.

Don’t take the money and run

Unless you have a final salary pension or pay into public sector scheme, you have no guarantees.

Many over 55s are taking pension cash to put in the bank or spend on holidays or big ticket purchases, such as cars and home improvements.

Because this affects future fund growth, think carefully before taking the money.

It’s unlikely to grow at the same rate as a pension if put in the bank. Saving rates are miserly and far below expected pension returns. As you can access the cash almost instantly from more pensions, just moving the money to a bank does not seem sensible.

The longer you can keep your pension fund together in one place, the more the fund is likely to be worth.

Below is a list of some related articles, guides and insights that you may find of interest.

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